Stock a Has a Beta = 0

question 18

Multiple Choice

Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECTσ

• A) if the marginal investor becomes more risk averse, the required return on stock b will increase by more than the required return on stock a.
• B) an equally weighted portfolio of stocks a and b will have a beta lower than 1.2.
• C) if the marginal investor becomes more risk averse, the required return on stock a will increase by more than the required return on stock b.
• D) if the risk-free rate increases but the market risk premium remains constant, the required return on stock a will increase by more than that on stock b.
• E) stock b's required return is double that of stock a's.

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Definitions:

Variables

Elements or characteristics within a study or research that can change and potentially impact the study's results.

Negative Correlation

A relationship between two variables whereby they move in opposite directions.

Direct Correlation

A relationship between two variables where an increase in one variable is associated with an increase in the other, or a decrease in one is associated with a decrease in the other.

Negative Correlation

An interdependence between two variables marked by the rise of one and the decline of the other.